Headlines
• Sterling soft ahead of Autumn budget –
BoE rate hike bets dip.
• GBP/EUR hits weekly low –
German business sentiment rises to yearly high.
• ‘Cable’ falls to fortnightly low –
US GDP revised to 2.1%.
• Canadian Dollar rallies on crude spike –
Turkey bombs Russian plane, threatens stability in Middle East.
Sterling
The Pound weakened across the board yesterday as policymakers at the Bank of England gave an increasingly vague outlook on monetary policy. Kristin Forbes remained the most hawkish MPC member, with talk of raising rates ‘sooner rather than later’, whilst Andy Haldane repeated his warning that rates could even be reduced before they are raised due to enhanced ‘downside’ risks to the growth and inflation outlook. Governor Mark Carney remained on the sidelines, confirming he was still waiting for further economic developments before considering tightening monetary policy.
The largely dovish message from the BoE sent rate hike bets slumping and this caused Sterling to depreciate versus the majors. And there could be more trouble ahead for the Pound if investors are deterred by Chancellor George Osborne’s Autumn Statement, which is likely to feature a raft of growth-sapping austerity measures.
Euro
The Pound to Euro exchange rate sunk by around -70 pips to a weekly low yesterday in reaction to a dip in Bank of England rate hike expectations.
The BoE’s confusing policy outlook, combined with fears that Chancellor George Osborne could announce new measures that could potentially impact the UK’s growth outlook, weighed on Sterling yesterday. The Euro, meanwhile, benefitted from a sturdy German IFO score of 109.0, which beat expectations of 108.2 and marked the strongest figure since June last year. The business sentiment print was especially encouraging considering the survey took place following the Paris terror attacks earlier in the month.
US Dollar
Sterling slid to a fortnightly low against the US Dollar yesterday as a wealth of different factors weighed on demand for ‘Cable’.
Sterling-wise: sentiment was damaged by the lack of conviction from the Bank of England to start raising rates and by concerns surrounding George Osborne’s Autumn Statement.
At the same time the ‘Greenback’ was boosted by a robust upgrade to US third quarter GDP and a rise in global risk aversion. The US Q3 growth score was revised higher from 1.5% to 2.1% due to increased spend on business inventories and this was seen to pave the way for an expected Federal Reserve rate hike in December. Risk aversion, which often leads to flights of safety into the US Dollar, was stoked by news that Turkey shot down a Russian warplane near the Turkish-Syrian border. The implications of the military operation are yet to be realised but needless to say they are expected to be negative.
Canadian Dollar
Another currency that saw a spike in demand following the troubling news out of Turkey was the Canadian Dollar, which shares a strong correlation with its largest export, crude oil.
Crude prices rallied in the wake of the downed Russian warplane as markets hedged against a potential deterioration of relations in the Middle East, which could lead to disruptions in the supply of ‘black gold’. The news sent crude rallying 2% to a new two-week high, which in turn helped to drive GBP/CAD lower by almost two cents to a fortnightly low.
Australian Dollar
The Pound to Australian Dollar exchange rate shrunk by over -250 pips to a four-month low yesterday as Bank of England rate hike bets deteriorated and austerity anxieties weighed on demand for Sterling. The ‘Aussie’, meanwhile, was boosted by the Reserve Bank of Australia’s latest minutes report, which conveyed a relaxed board of policymakers willing to ‘chill out’ and leave rates on hold unless economic conditions take a turn for the worse.
New Zealand Dollar
The Pound lost out on around two cents to the New Zealand Dollar yesterday as traders trimmed their expectations of a near-term interest rate hike from the BoE.
Data Released Today
13:30 USD Personal Consumption Expenditure Core (YoY) (OCT) High 1.4%
13:30 USD Durable Goods Orders (OCT) High 1.5
14:45 USD Markit US Services PMI (NOV P) Medium 55.1
21:45 NZD Trade Balance (New Zealand dollars) (OCT) Medium -1000m